Patent Law at a Crossroads: Bilski and Beyond

Thank you it’s a pleasure to be here. I want to thank
Michael and Ryan and their colleagues for making this possible.
I’m going to talk about patent law, not intellectual property
in general or copyright in particular. I’m not going to talk
primarily about why free software is or how it works in the world,
but I am going to try to talk about freedom in the 21st century
because patent law is a major problem if you want to have freedom
in the 21st century. I’m going to try to talk about where we
are now which is at a very interesting moment in the history of the
patent system.

I need to begin by pointing out that the founders of the
American constitutional republic that we live in saw the
possibility of monopolies granted by government with extreme
suspicion. The statutory monopoly is no 18th century British North
American lawyer’s friend. The long common law history
beginning in the late 16th century had already taught them the
enormous danger of political corruption which arises from grants of
statutory monopolies. In fact, the route of the statutory monopoly
in English law, from there or any other English British N American
lawyer’s point of view, the origin of the statutory monopoly
is the crown’s desire to raise unconstitutional revenue. That
is, revenue not appropriated by Parliament.

Elizabeth I learned, and her successors on the English throne
imitated her success in learning, that a grant of a statutory
monopoly is a way to get money out of those who buy the monopoly
from you at the net present value of the royalties they can
extract. That is, the rents they can extract from civil society, a
form of tax farming. Because it is a form of tax farming and a form
of tax farming which raises a revenue aside from Parliament it was
considered from the very beginning in the late reign of Elizabeth I
to be dangerous. That’s why the case of monopolies, so
called, as reported by Edward Cook said that there could be no
grant of a monopoly, in that particular instance a statutory
monopoly on playing cards or an extra statutory monopoly, a
prerogative monopoly on playing cards. There could be no monopoly
on ordinary product by royal decree, by writ patent.

In 1620 after an outburst of patenting to raise extra
Parliamentary revenue by James I, Parliament passed the Statute of
Monopolies which enshrined in the statutory law of England the
common law’s newly generated hostility to monopolies and
stated that only Parliament might grant monopolies in statutory
form and that only for new inventions. This principle that the only
valid or legitimate use of the otherwise dangerous mechanism of the
statutory monopoly - this principle was further endorsed by the
first code of law written by British North American settlers in
Massachusetts in 1648 - the so called laws and liberties of the
Massachusetts Bay Colony, an alphabetical arrangement of all their
law under subject headings which stated under monopolies “no
monopolies are to be granted among us, save for new discoveries and
that for a limited time.”

This of course you will recognize as the basic grammatical
structure of the entitlement to the Imperial Congress made under
the constitution of 1787 to grant statutory monopolies in the US.
But the real purpose as in Massachusetts in 1648, the reason there
was such interest in authorizing specifically the grant of
statutory monopolies by Congress at the end of the 18th century the
reasoning behind that impulse has been long lost. Patent law in the
late 18th century setting of the foundation of the US is an
incentive to skilled immigration.

I must ask you to remember that nowhere in the western world at
the end of the 18th century and nowhere in the world at all was
there any regular systematic structure for publicizing and writing
down in reference form the technologies of ordinary industrial
production in daily life.

The French encyclopédie of the late 1780s, almost
coeval with the US Constitution, is the first systematic attempt to
record how trades and industries perform their work. 17th century
political economy had regarded such matters as national security
secrets. How to make silk cloth or drinking glasses in marketable
quantities cheaply or any other significant skilled industrial
process was regarded as the property of the country in which is was
being done.

The US benefited before it was the US from the broad emigration
of oppressed Protestants from different parts of Catholic or near
Catholic Europe and the first Congress and the Constitutional
Convention that preceded it understood that one of the ways of
developing the economy of a society with plentiful free natural
resources but a very small skilled workforce was to encourage the
immigration of skilled people on a deal which required the
disclosure of their inventions in a publicly consult-able reference
form.

The makers of the patent clause, then, are fishing to bring men
to the US who know how. They are also, no doubt about it,
attempting to reward those having come here continue to invent. But
the goal is quite evident from the conversation, discussion, and
correspondence of the period to make a society which benefits by
disclosure and that disclosure to supplement the very weak
technical literature of the world in which the founders lived.

We must remember that their assumption is that an invention is a
thing with a working model. That a physical object constituting a
reverse engineer-able example of the invention can be physically
deposited in a place where anyone else can go and learn from the
thing itself and the mechanical drawings accompanying the thing how
it is made. This is the bargain they are thinking about - a limited
term commercial monopoly for a new entrant to the country.

In effect, being subsidized for the burden of removing to the US
in return for a full and complete teaching of the nature of the
invention that produces the thing. And if we ask ourselves about
the things that were the antebellum patent law of the US we would
find ourselves talking about a cotton gin, an electric telegraph, a
sewing machine, objects deposit-able in the patent office in
working form from which anyone during the period of exclusivity
could learn everything they had to teach and make any necessary
modifications to be used elsewhere.

The patent law of the 19th century - that patent law of products
- becomes a law which takes onto itself the ordinary procedural
characteristics of 19th century administrative law. 19th century
American Administrative law is a lost subject. We changed the
nature of our administrative system fundamentally in the 20th
century, in the mid 20th century when we created the administrative
Procedure Act. 19th century patent law looks rather odd in the 21st
century, because we still use 19th century patent law as far as
process goes in the 21st century, but it looks entirely reasonable
under 19th century administrative conditions.

19th century administrative law is the administrative law of the
same country we were just talking about - one with a paucity of
skilled people. 19th century administrative law doesn’t
assume a permanent marriage between government and expertise as
20th century administrative law does. 19th century administrative
law assumes that government resources for making deliberate
calculations or evaluations of anything are few and far between.
Rules to be administered by systems of government in the 19th
century must be comparatively simple. They have bright lines and
don’t require a great deal of expensive investigation in
order to be made good. Patent law, therefore, is as sophisticated
an administrative process as 19th century American society can
manage. Heavily skilled clerks with technical knowledges are
required to make a fine determinations by 19th century
administrative standards. Is this invention novel? Is it
non-obvious?

I would point out that the patent system of the 19th century
therefore becomes expert at answering questions based on its own
records. The assumption of the 19th century patent system is that
everything that should be patented already is patented already;
therefore, when you bring a physical invention to the office and
deposit its working model the correct way to determine whether it
is novel is to ask whether it is novel in light of the art already
in the office and when asking whether it is obvious you are
essentially asking whether the very semi-skilled form of art
knowledge possessed by the patent examiner would have regarded this
as a natural extension of the existing art deposited in the office.
In other words, searching is about searching what the office knows.
Like other 19th century administrative structures, the patent
office assumes that all it can be expected to do is to look in its
own files and to make rough binary determination - 0 or 1, novel or
obvious or not - on the basis of the consultation of its own
administrative record.

We still live there though the entire procedural structure of
the administrative system we use for everything else has
changed.

The US economy benefited, nobody should doubt that it benefited
from the extraordinary technological inventiveness of Americans
understood throughout the world by the middle of the 19th century
to be the distinguishing characteristic of American civilization in
the world - its technological inventiveness. And also understood
throughout the world to be an adaptation to the American political
economy condition. Lots of land, few skilled workers. Americans
invented from the 19th century point of view, ways to use fewer
skilled workers to achieve larger outputs. The most important such
invention is a business model. It is manufacturing interchangeable
parts. It is therefore not patentable or patented.

But the idea, the American system, the breaking down of physical
object into parts that could be interchanged among units because
they are manufactured in standard gages, sizes, and performances -
that’s the central invention of the American seen from the
world economy in the middle of the 19th century and that plus
railroads, cheap iron and coal and the presence of an enormous land
for agricultural and industrial production is the nature of the
19th century industrial superiority of the US.

But the very success of that economy, the American system
pursuing industrial production in a new and more productive - that
is, more output per hour of skilled work mode. The very success of
that instrumentation altered the nature of industrial economy. By
the second decade of the 20th century the economy that we actually
had depended for its wealth and its power on industrial processes
as much as products.

Geochemical discovery and development, the process of
manufacturing chemical and electric goods out of the combination of
material and skilled knowledge. Steinmetz’s great electric
motors for the general electric company. You remember the one that
was running Henry Ford’s assembly line in Deerborne and it
broke and Steinmetz was brought from Schenectady to Deerborne to
fix it and in the end, he added one coil of wire and the general
electric company sent a 10,000 dollar bill to Ford and Ford asked
for a specification of the items in the bill and Steinmetz wrote
back “Wire. $1. Knowing where to use it. $9,999.”

The industrial processes of the 20th century did to time what
the industrial processes of the 19th century did to matter. They
broke everything down into slices of time. Frederick Winslow Taylor
and Henry Ford produced the understanding of what it means to make
something in American industrial life. It meant to organize
activity in time. That was a process. A series of finely
constructed steps precisely indicating how a thing could be
manufactured at least cost in materials and labor in a finite way
reproducible indefinitely. Whether it’s a motor car or a tire
for a motor car or paint or a watch the proposition is the same one
- the time necessary to use the machinery to make the ideal object
is sliced into steps and those steps can be taught to a worker who
can then be joined to the machinery under the supervision of
someone with a brain that has been trained to think not about the
job slice but about the process as a whole. This is not
patentable.

These would be processes and the statute speaks in terms of
products until 1953. Then, Congress adds the words under which we
now struggle, “or process.” Let us be clear that the
Congress that used those words had, in the usual synthetic sense,
an intention.

We are reading a statute in light of what it is that the
legislature that made it intended. And in the usual way we must
reconstruct their intention from the dictionary and/or the
committee reports and/or some common sense about the world, but no
matter how you do it the process that they have in mind is the
Fordist industrial process. A series of steps using specialized
machines to produce outputs which are still in their essence
products made by employing matter in new forms through processes
that can be described precisely in relation to the work being
done.

Shortly thereafter, that is shortly after 1953, the US patent
office responds both to changes in statutory language and to the
changing nature of the inventions being made by ending as an
administrative matter the requirement for the deposit of a working
model leaving behind, as we were taught in our childhoods if you
have as much gray hair as I, that the only things that the patent
office required working models of were the machines that violated
the second law of thermodynamics. And that was how it was described
in patent office propaganda in the early 1960s. From now on the
only thing you need to bring us a working model of is anything you
claim that reverses entropy. Perpetual motion machines you have to
demonstrate. All other things the claims and drawings are
sufficient.

Of course, this change, a change away from the idea that there
is something you have to give the patent office to prove that
somebody else can learn, that reduction to practice actually means
giving a thing. That’s about the only change being made in
the political economy of the patent office. What is not being
changed is the basic administrative law structure which we now need
to think about a little bit because by the time the 1953 Act said
you could patent processes, we had changed the administrative law
of the US completely.

The administrative Procedure Act of 1946 revolutionizes the way
we think about government in any number of fashions but two that
are crucial here are that it makes a permanent marriage between
expertise and government. Government is not supposed any longer to
be intervening in the economy or taking other administrative
actions that affect private rights without consulting more than its
own file cabinet. The theory of the APA is that through rule-making
on a record construction of expertise, judicial review of factual
bases for regulation, the theory of the APA is that government is
responsible for having all the information that expertise can
provide, not merely what happens to be in the files from last time
around. Everything becomes subject to the rule of cost/benefit
analysis, which is regarded as the fundamental technology of
government. Understanding whether proposed government actions are
more helpful than they are harmful and making a systematic and
careful evaluation of the relationship between benefits and cost
before deciding to intervene in the economy. This over the
subsequent generation becomes the rule that everybody must follow
when making marginal interventions in the market. Do you want to
make an occupational safety and health rule that will change the
way deli workers cut meat or machine shop operators use a drill
press? Do you want to set standards for workplace exposures to
chemicals of industrial significance but potentially also
significant dangers to workers’ health? Do you want to make
rules about nutritional labeling or advertising?

In all of those cases you must engage in cost/benefit analysis
to demonstrate that the intervention is more helpful in the
achievement in public purposes than it is harmful and that
cost/benefit analysis is subject to judicial review. That’s
the system of government we made in the 20th century and just about
the only thing we didn’t change to conform with it was patent
law. Patent law continues not just to elide the idea of
cost/benefit analysis. Patent law flies in the face of cost/benefit
analysis.

The patent law assumption is that the value of every invention
is infinite. Show only that it is novel and un-obvious and you are
entitled to a 20 year statutory monopoly without any consideration
of the possibility that there are offsetting harms.

No need to consult the public interest of any kind. If the
private party shows that he meets the definitions contained in the
statute then there is no public interest to consult. Everything is
assumed to be benefited purely by his taking rents on the basis of
his invention.

This is increasingly undefensible. This is increasingly
difficult to understand except that nobody is understanding or
seeking that it be defended. It’s simply, like so many other
things about the law, the consequence of the rule that you
don’t ever have to do anything just because you’re
obsolete.

Somebody has to come and do something about your obsoleteness.
And nobody wants to do anything about the obsoleteness of the
procedure - the administrative procedure of patent law because the
change in the words process from product to product or process
allowed so much new rent seeking. Remember, as I said Congress must
have something in mind when it talks about processes and it is
talking about processes that move natural materials around and make
new things out of them. But within a generation in the change of a
statute, the processes being generated are no longer processes that
do anything in the real world. The processes involved are now
things computers can be made to do and things that businesses can
do using computers where they used to use people.

These are after all, the basic processes now at stake as we
consider the scope of 21st century patent law. Computer programs
and business methods based on the use of computer programs to do
what skilled human beings used to do.

In the patent law before 1953, there would have been no issue of
such things. They were unpatentable. That was everybody’s
plain understanding. When the Supreme Court began to see such
claims it made very clear in its own description of the meaning of
patent law, that these were unpatentable inventions save in
relation to their continued association with industrial processes.
This is the great lesson of Diamond against Deer is it not?
There’s rubber being vulcanized. Had there been no rubber
being vulcanized the court’s completely clear. You could not
have patented a computer program to vulcanize rubber. You had to be
vulcanizing rubber.

The Court understood wherever it faced the question between 1953
and 1990, the Court understood that the situation had not changed.
Patent law could not be used to convey government ownership of
facts of nature, mathematical principles, mental steps purely
mental in character, or algoriths. All of those represented
categories evidently unsuitable for patenting under all previous
understandings and began to trench upon the most dangerous aspect
of the problem of the statutory monopoly because the statutory
monopoly when applied to a pure idea that does nothing in the
physical world comes into conflict with the very concept of the
freedom of speech and thought. As the Supreme Court has directly
shown in recent cases about copyright, there is an inherent
potential tension between Article I Section 8 and the First
Amendment and as the Supreme Court has said in Harper and Row, in
Feist against Rural Telephone, in Eldred, in a line of copyright
cases. The more or less simultaneous adoption of Article I Section
8 in the convention’s constitution and the First Amendment by
the First Congress suggests that in the minds of those making the
instruments, to the extent that you care about initial intention,
there is no contradiction. Which means that one ought to interpret
the statutes so as to avoid any possibility of the unintended
contradiction between the law of statutory monopolies and the law
of free expression.

Once you begin to present the possibility of a long-term
statutory monopoly on something you can do altogether in your head,
or using a language of technological communication between people,
you’re trenching on the very distinction that makes patent
law secure from First Amendment scrutiny in the first place. So
this is the difficulty presented to the Supreme Court currently
though it should not have any difficulty because the Supreme Court
never created the difficulty because the Supreme Court never said
you could patent purely mental operations or ideas.

What happened was that the US Congress in 1982 passed the single
most misnamed statute in the history of the US - the Federal Courts
Improvement Act, which massively dis-improved the federal courts.
You remember that the difficulty that Congress was attending to is
the terrible problem of butterflies in the tummy that overcomes
district judges when they have to decide patent cases. There are
few things that responsible district judges hate more than patent
cases, they always did and for a simple reason. A lawyer has spent
her entire career learning law and becoming a generalist district
judge and she sits in a position of great responsibility and some
honor from day to day making difficult decisions of every kind. And
now in a trial in which she is going to be required to find facts
and make decisions with significant consequences she’s going
to be asked to learn about how to manufacture paint or how to make
chips in large quantity by doping them with something a little
mysterious every once in awhile in the middle of the gallium
arsenide or well you understand of course. The problem is pregnant
with the difficulty of humiliation. She or he is going to say
something that knowledgeable people are going to regard as whacked
out. Most likely because she’s been fooled by some fast
talking patent lawyer who knew all about how to fool judges because
that’s basically his job. Judges don’t like to be
fooled by lawyers and most of the time they figure out how to avoid
being fooled by lawyers but what can you do when some
tassel-loafered guy is working all of his magic on you in regard to
stuff that could as well have been written in Klingon for all you
can do about it.

Congress, therefore solves the great problem of the tummy
ruffling of the district judges by leaving the district judges
alone to do the same job in exactly the same way they’ve
always done it but to give them a court of appeal full of patent
lawyers to do it for. This is insane. It doesn’t improve the
quality of patent fact finding in the least. It doesn’t
change the difficulty that the federal courts really have in
conducting anything like judicial review of patent granting. It
doesn’t do anything to assist the system titrating public
interest questions in the way patents are actually employed,
enforced, used for intimidation, or threat, or as leverage in other
litigation. It does nothing beneficial at all but it provides a
specialist court of appeals which will be guaranteed to like
patents more than anybody else.

The results were deplorable in every other way. Had Judge Giles
Rich not been apparently immortal and not gone on from year to year
as Chief Judge of the CAFC inventing more and more ways to use
patent law to get rents on everything. Had he not found the
business method patent all by himself apparently on Mount Sinai
some weekend.

Had he not discovered the broad gage patent availability of
software, somebody else would have done it instead. But the CAFC
was remarkably fertile in ways to take advantage of the fundamental
understanding of the industrial world of patents in the
post-industrial economy because we live now not in the industrial
world where products are made by the jointure of skilled knowledge
and high technology to material stratum. We live in the
post-industrial information economy where services are enabled by
the combination of skilled minds and high technology.
Pharmaceutical development and discovery. Financial services.
Information technology itself. Those are now the areas in which the
patent system is employed. The industrial process users for whom in
theory the statute was updated in 1953 have fundamentally abandoned
the patent system. They are trade secret protectors of their
products now because a 20 year statutory monopoly is useless when
the product cycle is a year or two.

And where everybody can see what you are doing and invent around
unless you keep it so secret that they can’t see what
you’re doing.

So patent migrates to a world in which process now means mental
steps. And in the areas where patenting has not traditionally been
pursued before, like all the areas of post-industrial life where
the CAFC afforded patent scope but there was no history of
patenting, the performance of the patent office at reviewing the
art was just purer.

Everything in our world, the world we practice in the world of
computer software manufacture pure and simple, everything in that
world has been patented 3 times. That’s our rule of thumb.
Once in the mainframe era. Once in the mini computer era. And once
in the micro computer era. But of course in the mainframe area you
couldn’t actually patent it. So you defensively disclosed it.
In the mini computer era you weren’t sure but you might be
able to get system claims out of it so you begin to get a trickle
of patents and then under the CAFC all hell breaks loose and the
patent office begins to reward rent seekers everything they could
possibly want for things that had been invented and disclosed
already. But, they’re not in the files of the patent office
because they weren’t patentable the first time they were
discovered.

So searching the patent office itself is a poor way to find out
whether this or that form of computer programming technology has
been seen before. It is a poor way to understand whether inventions
have been made before.

And of course, it makes very little sense to say about a
business method well now it is patentable because it uses a
computer when before it wasn’t patentable because it used a
man’s mind.

So we have come to a position in which the Supreme Court must
deal with a crowd of internal contradictions that the loose and
lively patent system of the boom times made possible. Like so many
other matters, this is a bubble that has burst. In the last half
decade, the Supreme Court has, in a not so gently way, intimated to
the CAFC and the patent office that they thought the whole thing
had gone a little too far. Whether it was a solid march back
towards some meaningful obviousness criterion in KSR or it was the
intimation in ATT against Microsoft that software might not be
altogether obviously inside patent scope and that the question
might be open. The court has offered significant reasons for the
parties which had scrambled off on their own in reconnaissance and
rent seeking a good reason to come back and get on side.

In their last 2 to 2.5 years the CAFC and the PTO have behaved
as though they got the message. Or at any rate, as though they got
a message. That it might be a good idea to come a little closer to
the mother-ship again.

Which leaves us with our friends Mr. Bilski and Mr. Warsaw.
There’s nothing special about them, you know. They’re
like a lot of other investors who didn’t have a chair when
the music stopped on the bubble music of our time. Oops. A little
too late for the party. They had been caught by the descending
gates of something like a desire to come to Jesus in the patent
office. Suddenly, it has been discovered that merely having a way
to use a computer to hedge risk and commodities trading is not
actually a patentable invention given that guys with
electromechanical adding machines and before that, guys with slide
rules and before that, guys with abacuses and checker boards, have
been doing pretty much the same thing since the beginning of
commodities trade. The “and a computer” just actually
doesn’t cut it anymore. It didn’t really ever cut it
right? It was an artifact of the combination of a statute meant to
do something else with an administrative procedure left from before
the black lagoon was drained.

It was only an artifact of bad procedure plus wonky statutory
language meant for other purposes that anybody fooled themselves
into thinking this could be an opportunity for rent seeking in the
first place, and that only by dint of disregarding the obvious role
of the First Amendment in making sure that ideas cannot be owned.
So Mr. Warsaw and Mr. Bilski now find themselves in a lawsuit in
the US Supreme Court in which, as a patent lawyer with whom I agree
about absolutely noting else in this lawsuit reasonably said, what
everybody knows for sure is this is a patent that shouldn’t
be granted. It’s not their victory one way or another which
is at stake. It’s whether the Supreme Court believes that the
delicate and appropriate retreat of the PTO and the CAFC goes far
enough.

What the CAFC has said is “Oh, let us find ourselves in
our blacksmith shop a test which restores some similarity between
our behavior and that of the statute as read by the Supreme
Court.” What the patent office has said is more mysterious.
The patent office may have indeed retreated all the way back to
Diamond against Deer. It should do. But you know how it is. The
logic of capitalism is remorseless. Our friends, who a year or two
ago were sure that software patents were more trouble than their
worth, have begun to realize that they have tens of thousands of
patents on software and that each of those patents, worthless
though they may appear to be to the skilled eye, is real estate
carried on the balance sheet. It belongs to the shareholders. It is
very difficult to go to the Supreme Court and say “Judge, you
were always right. We knew you were always right, your Honor. We
actually were pretty much on your side, but we have 95,000 building
lots and we would not want to have to explain to our shareholders
why we decided to agree with you that they should all be
vaporized.”

So what has happened as we have proceeded closer to this
crossroads is that enthusiasm for passing through them to the other
side has begun to flag a little bit among those who have been our
allies the past half decade. They were being murdered by the
stupidity of the patent system - the large IT companies were.

It was in every way harming them. The trolls were taking random
bites. The overhead of the constant dodging, ducking, and weaving
was becoming unendurable. And the free software world was valuable
to industry in part because it created, through its remorseless
determination to have a system of goodwill and free knowledge
exchange, it created a demilitarized zone to some extent, where
almost all the IT firms in the world with one profound exception
came to discover that they were better off agreeing not to engage
in patent aggression within the team. The community became more
important than the atomized idea. The patenting inventor after all,
is no longer some skilled artisan in Moravia who might be persuaded
to remove to Pennsylvania. The inventor is an employee of a company
that works for a company with 7 other companies to create protocols
to improve the NET which also happens to be protocols that are very
heavily loved and admired and worked on and framed by our guys who
are sitting in their bedrooms on their leave from high school or
who are the very paid employees of those companies of themselves.
We are making ideas in commons and the ownership of exclusionary
rights hurts everybody equally.

So we stand now at a place in Bilski and beyond where patent law
gets to decide how much it needs to change for the 21st century and
it speaks through the mouths of the Supreme Court Justices. Are we
going back to Diamond against Deer? At a minimum we surely should.
That’s the law declared by the relevant 5 votes on the
relevant court.

Might we beyond that glimpse the possibility that patent law
needs a more thorough overhaul than merely a withdraw to the limits
set by the First Amendment? No patenting of abstract ideas? No
patenting of purely mental processes without specialized machinery?
Or material being moved? Transformations of matter as the CAFC puts
it?

To go beyond that, to withdraw from 1953 and say that you could
only patent products rather than processes, would surely not be
right. But to constrain processes within an understanding of the
patent law that’s not inconsistent with the requirements of
the First Amendment would make some sense and more than everything
else some understanding that 20th century, let alone 21st century
administrative law, offers a structured method for the consultation
of the public interest, requires some structured method for
consultation of the public interest. Surely, we ought to be
thinking that far about patent law. The administrative procedure of
1850 has no justification in the world of 2015. There isn’t
any reason for using 19th century approaches to administration of
legal processes. This is not about the question of the substantive
law. This is about the question of the improvement of the
technology of government. We don’t use government power, we
don’t use coercion to produce massive interventions in the
private market without asking what the public interest is.

This is the libertarian case against patent law, copyright, and
other statutory monopoly. Government is acting coercively in the
economy. It’s not even asking what’s good for people.
Perhaps from the libertarian point of view it shouldn’t ask
what’s good for people. It simply shouldn’t interfere
in the economy. It always puzzled me that as acute and longstanding
devotee of Ayn Rand as our immortal central banker Alan Greenspan
could say with apparent unconcern that government should constrict
itself to its proper roles, like protecting intellectual property.
I always thought that he must have been absent on the one day when
she talked about that during their 30 year association.

How could that not be government intervention in the economy?
The handing out of 20 year statutory monopolies right left and
upside down? So both the libertarian case and the communitarian
case about the problem of patents rest primarily on the process.
How come we don’t use a contemporary process for deciding
whether to coerce the economy in big long swatches.

If the OCHA wanted to set a rule for a 20 year period then the
court of appeals for the DC circuit would say what’s the
cost/benefit analysis on your 20 year period? Why 20? Would 5 do
95% as much good for 50% less harm? What are those years there
for?

Even the question of term in other words should be subject to
some inquiry of a 20th century rational kind in the middle of the
21st rather than being relegated to some 19th century idea that all
sizes must be the same because the agency wouldn’t know how
to tell the difference.

We have a great deal of work we might do on the patent law in
the aftermath of a retreat to the Supreme Court’s own
intended lines.

And there really isn’t any case for underwriting the law
of the bubble anymore. Everybody knows where we’ve just been.
Everybody understands that the very financial industries which
gamed the hell out of every other system gamed the hell out of this
one. Everybody understands that parties have been maneuvering to
use the power of the state to enrich themselves at the public
expense. That’s where we’ve been. The religion of the
time was greed and everybody sees it. So there isn’t any
reason to underwrite that anymore. Nobody is benefited by a
continuance of the fast and flashy fluzy-ism that was patent law
between 1990 and the day before yesterday. Something will have to
give.

Of course, there’s a lot of weight on the other side too.
The modern pharmaceutical industry is entirely dependent upon this
structure of patent law.

The deepest and best-funded monopoly in the history of the
world, Microsoft, is still fundamentally of the belief that it can
use arbitrary software patents based on “I have a rule for
doing this and if you’re going to do this to interoperate
with anybody else you’re going to have to pay me” kinds
of threats against every form of the free exchange of technological
information regarding software for computers commercially
useful.

There’s no doubt about the level of the impacted stakes of
those who have what they consider to be an equity interest in the
rent stream. This is going to be a big political problem either way
and maybe the Supreme Court isn’t the last stop which is why
I would urge you to think particularly carefully about the role of
the First Amendment here.

Whatever happens in Bilski somebody will go and ask the Congress
to change it. Whatever happens in Bilski the assumption will be
that if you have 60 votes in the US Senate, you can make any kind
of rent seeking statute you want. But that’s not quite right.
The First Amendment limits on what the patent law may do are
un-described but visible for the same reasons that they are now
described and visible with respect to copyright. Bilski may or may
not be the case that speaks to that. The US Supreme Court tends not
to get to such questions until it hasn’t any choice and
perhaps it doesn’t think it hasn’t any choice right
here.

But come there we will, because unless we lift this idea that
the 21st century will permit the ownership of ideas, we will be
living in a 21st century where some very fundamental ideas are
owned. Ideas without which you cannot live and which you would have
assumed to be merely the common property of human kind will become
the property of a few and the rules of exclusion will begin to
work. The world food supply, the death and life of every human
being, once the genetic revolution comes to fruition, will either
be patentable or not patentable and upon that basis, real meaning
of political power and 21st century society will be determined. So
something will happen. Patent law will come to play an enormous
role - either oppressive or facilitative in the life of the US and
global society in the 21st century as it came to play a crucial
role in the 19th century society of the expansive US. Justice will
be at stake, which means that those of you who care about justice,
and I hope that’s every single one of you, will find that
there is a conflict going on in which your view of justice - one
side or the other will prevail.

I know which side I’m on. I know which side my colleagues
are on. We come to this not as neutral scholars investigating but
as people who believe that the civil rights of human beings depend
upon the answers and we don’t mean to compromise. So what I
have said comes, I would agree, under the umbrella of advocacy. But
I urge you to review the case for yourselves, to check its weak
places, and to press on it.

What lies below the surface of this crossroads in patent law is
urgently important and how you think about it and what conclusions
you come to and how you act on those conclusions will contain much
of importance about whether there is justice or not in the 21st
century. I’m happy to take your questions. Thank you very
much.

Is somebody calling on people. Let me do it if I might. Who
would like to ask a question?

Question: You mentioned one size fits all term for patents. Do
you believe that if they were to change that for software would
there be a one size fits all for software even?

Moglen: No, the proper way of thinking about this, Ryan, is that
each intervention in the economy, like each rule made by a
regulatory agency, requires a cost/benefit analysis appropriate to
the rule not to some class of rules. The proper question would be
where’s the crossover point between the good done by
providing a monopoly here and the harm done by providing a monopoly
here. That requires a little bit of inspection of the political
economy of the change. The pharmaceutical patent system hands out
20 year monopolies on the use of molecules to treat disease. This
is obviously a bad way to do things.

It’s why we have 3—count them 3—patented
pharmaceuticals for the treatment of Alzheimer’s disease in
dogs. And it’s why we have in the US and elsewhere in the
world, no real interest in the Malaria treatments or
trypanosomiasis.

The problem with a 20 year patent in software is what’s 20
years in software? This is not about some notion of the way things
ought to be or how to incentivize. This is a rent seekers paradise.
The correct answer with respect to term is what’s the product
cycle in the business you’re in. What’s the nature of
the recovery you’re trying to get for what degree of
disclosure. How good are the disclosures in providing for real
opportunities for others to grow the technology, and in relation to
the quality of the disclosures and the nature of the costs
you’re trying to recover from bringing about the invention,
what is the period of time economically justifiable for the
issuance of a monopoly? The patent office could, under the
conditions that are imposed on every other administrative agency
under the APA, make those determinations subject to judicial
review. The consequences would be - I am anticipating your answer -
fewer patents coming out more slowly. Only the things that really
need to be patented would be patented. That would be a positive
outcome. And it would correct the incentives of American
universities- a very important secondary subject I haven’t
had a chance to talk about here because time is short. An entire
hour should be devoted, or at least an hour plus a lengthy
discussion, in every university patent law class in the US about
the consequences of the patent system for higher education.

All of which is about winning the 20 year monopoly and then
winning it again once you figure out which infinitesimal portion of
your university’s patents actually make money for you. At
which point, like a pharma company you rush right out and try to
re-patent that invention to get more and more time.

When the public patent foundation, headed by Mr. Daniel Ravicher
who many of you know, went after the third patent on the
world’s most profitable pharmaceutical, Lipitor, which
resulted in $84 billion dollars in rent readjustment back from
pharma to patients and insurers because 7 years of patent lifetime
got lopped off the drug which now earns $12 billion with a
“b” dollars a year for Pfizer. The patent we were
attacking was a patent which said you know that chemical
Litovistatan twice patented for use in clinical administration
daily to reduce blood cholesterol. You know that one? The one that
you’ve patented twice already? Well we’ve crystallized
it. Can we have another 20 years please? And the patent office
says, at least until asked under re-exam to consider its judgment,
“oh you crystallized it? Really? Wow. We never thought of
doing that to any chemical.” More shelf life, better
stability. That’s worth another 20 years sure. And the reason
we did it wasn’t just Lipitor, though that was plenty of good
reason to do it. The reason we did it also was to say “You
know how many tens of thousands of ‘we crystallized it’
patents there are?” Each of them renewing a 20 year monopoly
on a molecule? A fact of nature? Added to the knowledge about where
to use it and how? Wire. $1. Knowing where to use it: rent that
makes your eyes bubble. Right?

The proper answer to the term is what are you recouping and why
should we give it to you that way instead of some other way? Why
shouldn’t you have a prize? Why shouldn’t you have a
contract? Why shouldn’t you have some other form of
subsidization which leaves the public interest in control? Why is
private rent seeking the correct answer to how you should be paid
for what you’ve made. Those questions are the questions
judicial review of patenting should be about. If the patent system
were just another branch of administrative law, that’s what
they would be about.

Question:I agree with what you’ve said thus far. My name
is Chris and I run a software company in the city. What are the
things that software companies can do to protect their intellectual
operating barring patents? Answer: But what is the intellectual
property of the firm before we decide how to protect it? We better
decide what it is. What is it? Other voice:Untangible goods that
are considered assets to the public interest.

Moglen: Sure, but is it the secrecy of the source code? So keep
the source code secret. We think that’s a really bad idea. We
think you’d be way better off with 100 million people finding
and fixing the bugs all by themselves. But if you’re
convinced that the right way to do it is to bear all of the costs
of maintenance internally and reduce your market drastically to the
people you can actually provide the code to, then you’re
really in a trade secret business and software turns out to be very
much like most of the world’s industries in which trade
secrecy is really what’s at stake.

If there’s something beyond the trade secrecy of your code
that you think of as yours, as opposed to that of the human race in
general, what is it? Is it knowing that you can exchange the
content of two registers without an intermediate location using 3
consecutive exclusive “OR’s”? Is it the discovery
that you can do linear programming problems by manipulating an
idealized polyhedron in your head or in your machine? Is it the
discovery that you could automate the accounting box chart into a
spreadsheet? In other words, is it really the case that what the
software industry needs in order to function well is ownership of
ideas at all? You can of course copyright your code and give it to
people on restrictive terms. Let them read it and think about it
but not use it or copy it without your permission. Most people tend
to think that’s sort of naked copyright isn’t much use
to them. They’re really trying to keep secret what
they’ve done. We really think that just under 21st century
conditions produces less good software which is why we work with
people to try to increase their productivity, their output and
their wealth without requiring them to keep generally useful
technical information secret.

But I’ll go along with you that the question you ought to
be asking is what’s good for my business. The answer is
what’s bad for your business is a troll with a patent. That
should be your gravest concern - somebody who doesn’t make
anything. He doesn’t want to work with you. He just wants you
to work for him and the reason he wants you to work for him is
computer programs have a lot of features and he owns some.
That’s your real big problem and what we want to do is lift
the ceiling on you for that. So why don’t we first do that
and then we’ll figure out what else you need.

Question: I have a question about the First Amendment argument.
I just think it’s really interesting wondering how far you
can push it if I can easily see a completely abstract idea is that
First Amendment argument. Did you really think you could push that
into the realm of software?

Moglen: Well, here’s the question. If I have a patent that
can be infringed entirely by some code without anything else - any
machine or anything in nature- then what I’ve said is is you
can infringe the patent by describing its claims, because computer
program source code is a way we communicate ideas to one another.
Most computer program source code has a lot more stuff in it meant
to communicate with human beings than it has meant to communicate
with computers. We use source code to express ideas. You could, for
example, say - maybe you want to say - that the best mode of
practicing any software invention is source code that describes the
practicing of the claims directly in an executable form.

But once you’ve gone to that conclusion, you’ve
concluded that you could infringe the patent by talking about the
invention. Now you’ve got a problem. That’s the problem
posed in Metamune. You go around and you say to doctors
“Here, you could correlate this observed situation in the
blood count with vitamin deficiency. You know, doc, you could use
that to diagnose deficiencies in dietary necessary nutrients in
your patients.” Oops, you’re infringing my patent on
doing that. What did I do? I talked to a doctor and told him he
could do a thing? My communication which is essentially the same
thing as the disclosures, so tell me why if a computer program all
by itself can infringe a patent it’s ok for me to circulate a
copy of the patent but it’s not ok for me to circulate a copy
of the program source code. Now, we’re beginning to get to
why I do not think that it’s such a stretch to wonder whether
the First Amendment has some role to play here. You ought not to
grant patents for things that can be infringed solely by
communicating an idea.

You never could before. Before 1953 you couldn’t because
it wouldn’t have been a product and you wouldn’t have
gotten it in the statute. Now the statute says process, meaning
vulcanizing rubber and the Supreme Court says no algorithms unless
there’s actually rubber vulcanization going on and some
subordinate judges and administrators decide to ignore that very
important point for 15 or 16 years building up a whole array of
rents that are being taken somewhere in the economy creating a
whole bunch of guys who’ve got an in-built stake in the
existing system and now we’re going to have to do a little
heavy lifting and clean it up. But the truth is there
wouldn’t be anything so hard to imagine about why we
shouldn’t have gotten ourselves into it. That’s why the
Supreme Court didn’t go into it in the first place. The
problem we now have is they bitched up for a long time, nobody did
anything about it, now you’ve got a lot of guys with an
equity stake and the wrong answer. What do we do from here?
That’s what the Supreme Court faces in Bilski.

Question: My name’s Adam. I’m going to try to see
how to get some clarification on what you actually think the
Supreme Court should do..

Moglen: Well, the Supreme Court is 9 judges and what 5 say wins.
If what you’re asking me is how each one of them ought to
vote, there’s never any reason why it shouldn’t be
9–0 for whatever you think the world is really best at, but
you know that’s not the way it really works right?

Adam: I guess my point is more to do you think that the Supreme
Court should find the 1953 amendment…

Moglen: No, it’s plainly not unconstitutional.
There’s nothing wrong with saying you can patent processes in
which what goes on is materials are re-manufactured into something
else using machinery and human wit. That’s a good patent -
vulcanizing rubber however you do it, including with a computer.
Digging iron out of the ground and making steel out of it, however
you do it, no matter how many computers or how much software is
involved, that’s fine. What the CAFC says the Supreme
Court’s rule is may not be exactly the Supreme Court’s
rule and it may not be exactly an emanation of the statute but what
it is is an attempt to get back to a safe neighborhood and the
Court ought to say “We meant by our prior cases what we meant
by them.” They ought to say “We had a view of patent
law and that was right. We understood the statute and we read it
carefully and we read it in light of all the things that statute
readers are supposed to do and our cases are correct.” Parker
against Fluke is correct. Diamond against Deer is correct.
There’s nothing wrong with those case. Now, unfortunately,
we’ve got a bad situation cause those cases didn’t get
followed for a long period of time. The specialist court that was
supposed to do it didn’t do it. Now they’re trying to
clean up and they’re right. That would be enough. Of course,
that would be a cataclysm but there’s nothing complicated
about it and it doesn’t require any heavy lifting from the
Supreme Court. It requires nothing more than a decision by the
Court to vindicate the correctness of its own prior judgments and
to adhere to its own precedence.

Question: So the Court thinks that the CAFC has gone beyond what
it should have done at State St. why didn’t they deal with
this at State St.?

Moglen: The Supreme Court is not required to do anything.
That’s its beauty and its problem. If what you mean is had
the justices known what was coming might they have done something
else in State St.? Maybe. But it is always the Supreme
Court’s view that the development of the law is primarily for
other courts. And the Supreme Court either wanted to or had no
choice but to or decided without deciding to allow the horse to run
and it ran.

Any other questions?

Question [Paraphrased]Is the US worried that international
treaties would constrain it to support the patent policies of the
last 15 years, regardless of the earlier precedents?

Moglen: No. We’re not. We are first of all the US. Would
that we were more constrained by international agreements than we
are. That somebody will take us to the WTO for not having done what
we ordered the rest of the world to do is not how the game is
usually played right? The US retreats from the high water mark of
its oppressive behavior in the international law system
recurrently. Nearly 20 years ago I was involved in fighting the US
view that encryption could not be exported in idea form. It took a
lot of work to get the US government to recognize that we had as
much right to export source code implementing RSA as we had right
to export source code implementing the Caesar cipher or the
Vigeniere cipher. In 1995 at the high water mark of export controls
over encryption, the US secured an agreement from all the other
western European union that they were going to adopt the American
approach to barring the exportation of encryption technologies.
Three years later, the US government conceded that the whole thing
had been wrong from the beginning and gave up. Wassenaar is still
there. But once the US walks away from an absurd position, the rest
of the world is usually content to allow them to do so. Under
present circumstances I do not think that the US would find itself
in any harm if it restored something like the previous balance in
the patent law. We’ll see.

Question: Should the Supreme Court uphold Bilski what will
happen next?

Moglen: Patent reform in the US Congress will happen next. What
that will consist of remains to be seen. On the other hand, if the
Supreme Court decides Bilski the other way, patent reform in the US
Congress will happen too. The question will simply be which side
has the fire underneath their feet when they get to Capitol
Hill.